In what it says will create greater value for shareholders and stakeholders alike, the board of Cadbury Nigeria Plc has called for an extraordinary general meeting expectedly at the behest of its core investor, for shareholders to vote for the conversion of the outstanding inter-company debt of US$7,718,118.44, equivalent to ₦7,036,446,501.26 owed to Cadbury Schweppes Overseas Limited into equity.
The meeting, according to a notice by Mrs. Fola Akande, the Company Secretary/ Chief Counsel, will be held at The Grand Ballroom of the Civic Center, Ozumba Mbadiwe Avenue, Victoria Island, Lagos on Thursday, February 8, 2024, at 10:00am prompt.
Should the shareholders approve the conversion, it will be done at ₦17.50 per share, being the share price of the Company as at close of trading on December 27 2023 and on such other terms as may be agreed by the Directors subject to obtaining relevant regulatory approvals.
This means a total of 402,082,657 ordinary shares of 50 kobo each will be created and allotted to Cadbury Schweppes Overseas, with each share ranking pari passu in all respects with the existing ordinary shares in the capital of the company.
Should the meeting vote in favour of the deal, the stake of Cadbury Schweppes Overseas Limited in the Nigerian subsidiary will increase from 1,408,131,653 ordinary shares or 74.97% stake to 1,810,214,310 units representing 79.39% holding, leaving the holding of other investors at 470,070,309 units representing 20.6% from the previous 25.03%.
The meeting will also consider and if thought fit, approve an increase of the company’s share capital from ₦939,100,981 to ₦1,140,142,309.50 by the creation of 402,082,657 ordinary shares of 50 kobo each.
The conversion is expected to deleverage the company’s balance sheet and reduce pressure on the company’s cash flows, leading to improved liquidity which could be channeled into better uses by the Company or returned to
shareholders via dividends. The move will also reduce the company’s exposure to foreign exchange risk and its impact on earnings; while cutting finance costs, leading to improved profitability; thereby improving financial ratios, such as debt-to-equity and coverage ratios, potentially enhancing the Company’s financial standing and creditworthiness.
Offering a background to the debt, Cadbury Nigeria Plc, a subsidiary of Cadbury Schweppes Overseas Limited, an entity controlled by Mondelēz International Inc, which holds a 74.97% stake in Cadbury Nigeria recalled that between February 2021 and September 2023, “Cadbury Schweppes Overseas, advanced intercompany loans totaling USD23m to Cadbury Nigeria to help settle outstanding third-party loans which the Company had obtained to fund its raw material imports and other input costs.
“The company has however faced challenges with servicing its foreign currency denominated loans due to Nigeria’s persistent foreign currency scarcity. The liberalisation of the foreign exchange market in June 2023 and attendant devaluation of the currency put further pressure on the Company as the Naira value of its foreign currency denominated loans increased significantly.”
This, it continued, “resulted in an unrealised exchange loss of ₦20.6bn and a loss after tax of ₦10.2bn for the period ended, 30 September 2023.
“Despite these challenges, the Company has been able to repay Cadbury Schweppes Overseas, a total of USD18.6 million of the principal and accrued interest, with an outstanding balance of USD7.7m as at 31 December 2023.
“The settlement of a portion of the loan, however, crystallised an estimated foreign exchange loss of ₦13.5bn. In light of the above, the Board of Directors of Cadbury Nigeria has considered various options for settling the outstanding shareholder loan obligation and reducing the Company’s exposure to foreign currency risk. The conversion of the outstanding loan into equity (the “Conversion”) was selected as the optimal option for the Company, as it is expected to deleverage its balance sheet and save the company further foreign exchange losses.”
Consequently, the directors engaged with Cadbury Schweppes Overseas and agreed on a Conversion Loan Agreement (CLA) which is now being recommended for approval by shareholders at an EGM.